Rating action

Scope Ratings UK Limited (Scope) has today affirmed its B/Stable issuer rating on Finbureau LLC.

Rating rationale

The B issuer rating on Finbureau reflects the following credit considerations:

• Operating environment assessment: Constraining (low). Georgia is a small emerging economy that still lags regional peers on some macroeconomic indicators (e.g. unemployment rate, GDP per capita, economic diversification), despite gradual improvements and reforms in recent years. The National Bank of Georgia supervises the loan issuing entity (LIE) sector, but Scope considers that regulations are less stringent than for licensed banks.
   
• Business model assessment: Narrow (high). Finbureau’s business focus is on debt purchases and collection management in Georgia. It operates with a loan-issuing entity status and ranks among the largest debt purchase and collection companies in the country.
   
• Initial mapping of b-: The initial mapping results from the combination of our business model and operating environment assessments.
   
• Long-term sustainability assessment (ESG factor): Developing. Finbureau continues to implement sustainability initiatives and adapt to rising regulatory expectations. Strengthening digital capabilities is a strategic priority for the company to improve the scalability of debt collection. From a governance standpoint, Finbureau is privately owned by two shareholders who play an important role in steering the strategy and in managing the company.
   
• Earnings and risk exposures assessment: Supportive. Profitability metrics are solid and represent a credit strength. Finbureau’s profitability indicators tend to be well above those of other loan issuing entities (LIEs), microfinance organisations (MFOs) and commercial banks in Georgia in average. Return on equity has remained above 24% since 2018. Following a period of rapid business growth, Finbureau is now focusing on improving operational efficiency.
   
• Financial viability management assessment: Adequate. The management of solvency and liquidity metrics is adequate. The low debt leverage ratio indicates prudent financial management to avoid incurring excessive debt to finance the acquisition of assets. Liquidity has declined overall since its peak in 2021 following the acquisition of loan portfolios. This evolution is inherent to the company’s business model with periodic investments in portfolio acquisitions and a gradually replenished liquidity position, thanks to a cash generative debt collection activity. Loan-issuing entities in Georgia are not authorised to collect deposits. Finbureau relies heavily on funding from a limited number of Georgian banks. The absence of diversified funding sources is a rating weakness. Foreign currency mismatch is limited.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating-change drivers

The Stable Outlook reflects Scope’s view that risks to the ratings are balanced over the next 12 to 18 months.

What could move the rating up:

• Sustained strengthening of Finbureau’s business model accompanied by more consistent levels of profitability.
   
• Expanding and diversifying sustainably the range of funding sources.

What could move the rating down:

• Pressure on funding due to material concentration risk.
   
• Material deterioration in the company’s liquidity position.
   
• Greater competition in the debt collection and management sector, reducing profitability.

Overview of rating construct

Operating environment: Constraining - low

Business model: Narrow - high

Initial mapping: b-

Long-term sustainability (ESG-D): developing

Adjusted anchor: b-

Earnings capacity and risk exposures: supportive

Financial viability management: adequate

Additional rating factors: neutral factor

Stand-alone assessment: b

External support: not applicable

Issuer rating: B
 
Stress testing & cash flow analysis
No stress testing was performed. No cash flow analysis was performed

Methodology
The methodology used for this Credit Rating and/or Outlook, (Financial institutions Rating Methodology, 6 February 2024), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions - Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/uk-regulation. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Rating if the Credit Rating were to change within the next 12 to 18 months.
 
Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Rating: public domain, the Rated Entity, and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Rating originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Rating and/or Outlook and the principal grounds on which the Credit Rating and/or Outlook are based. Following that review, the Credit Rating and/or Outlook was not amended before being issued.
 
Regulatory disclosures
This Credit Rating and/or Outlook is issued by Scope Ratings UK Limited at 52 Grosvenor Gardens, London, United Kingdom, SW1W 0AU, Tel +44 20 7824 5180. The Credit Rating and/or Outlook is EU-endorsed.
Lead analyst: Alvaro Dominguez Alcalde, Analyst
Person responsible for approval of the Credit Rating: Nicolas Hardy, Executive Director
The Credit Rating/Outlook was first released by Scope Ratings on 7 June 2022. The Credit Rating/Outlook was last updated on 19 May 2023.
 
Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings.

Conditions of use / exclusion of liability
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